Although cryptocurrencies like Bitcoin and Ethereum can be volatile, the underlying blockchain technology is probably here to stay. As cryptocurrency is a new technology, government regulation and wider acceptance across the financial sector will help the market mature. This means that some of the cryptocurrencies we see today might not be the cryptocurrencies of the future.
Back in the 1990s, the Goo-Goo Dolls were on the radio and Michael Jordan dominated both the sports world and contemporary culture. The internet was taking off, and many were debating if it was just a fad or there to stay. Dot-com companies were launching with sky-high valuations, venture capital money was pouring in, and it seemed that the good times would never end. It did come to an end, however, with the dot-com crash of 2000 bringing this raging dial-up bandwidth field party to a standstill. Every skeptic alive was screaming from the rafters that the internet was dead. But, of course, it wasn’t. Does that mean crypto will follow the same path? Maybe, but it’s complicated. Let’s explore it below.
What exactly is crypto?
“Crypto” is a shortened version of cryptocurrency, which refers to digital currency. But it’s “cryptography” that is utilized by the blockchain technology behind cryptocurrency. The blockchain is a public ledger that records transactions in blocks. The data, or blocks, are encrypted using cryptography, which safeguards it from access by third parties and can prevent double-spending. The blockchain is completely decentralized and monitored by all parties involved.
This means that EVERYTHING that uses blockchain cryptography tech relates to crypto. NFTs, cryptocurrencies, smart contracts — the list goes on for what you could consider “crypto.” As most people invest in cryptocurrencies, we will focus on that here. The point remains, however, that this technology could evolve far beyond cryptocurrency and thus not only emerge from hibernation but help drive our future.
The headwinds that crypto faces
As a new technology, cryptocurrencies face many challenges.
Government regulation and involvement
You can look at the issues with government regulation from three different angles.
Lack of government regulation
Lack of government regulation has become a recurrent problem in crypto, particularly when it comes to the protection of small retail investors and unregulated platforms. If crypto becomes more widely adopted, we should see crypto regulation mature to the level of offering retail investors some protection.
Too much government regulation
Governments already have regulations in the form of licenses for crypto, with some governments like Japan going further after the Mt. Gox scandal. However, some experts argue that too much government regulation will hamper the decentralized finance thesis behind cryptocurrency.
Here is a summary of the state of crypto regulation in key countries around the world.
|Country||License Required||Central Bank Project|
Government entry into the cryptocurrency market
Governments worldwide are building their own digital currencies based on the same blockchain technology, with China being the current leader. If governments issue their own digital currency and incentivize people to use it versus other options, this could have a hugely negative effect on crypto and the price of cryptocurrencies in the future.
Lack of mass adoption and how it manipulates the market
A recent Pew Research poll put the adoption of cryptocurrency at 16% of the adult population in the United States. This dwarfs the minuscule amount of cryptocurrency traders that existed during its inception, but 16% is still way too small to be considered mass adoption. Furthermore, many cryptocurrencies, such as Ethereum (ETH) and Bitcoin (BTC), are concentrated in a handful of addresses (people).
Around 39% of all ETH and 11% of all BTC are concentrated in “large addresses.” This means that if any of these large holders or “whales” suddenly unload assets, this could have a domino effect and crash the market.
Quantum computing could change encryption
Quantum computing could change the game with cryptography and encryption in crypto, according to Arnaud Simeray, VP of sales and growth for Tatum, a platform that lets developers build applications using blockchain. “In theory, quantum computing could be a threat to crypto, as an attacker would be able to get the private keys from a wallet and steal the funds,” he says. He goes on to say, “But this is a very futuristic concept, as quantum computers are in very early stages. I suspect that by then, crypto will have evolved and adapted with new cryptographic innovations to prevent that.”
The simplest way to explain why this happens is that with cryptography, when a computer runs simulations of possible numbers to try and break the encryption using traditional binary code, 1s, and 0s. In the world of quantum computing, data can be 1s and 0s at the same time, leading to an exponential growth in the speed of calculations, enabling cryptography and encryption that was previously unbreakable to be broken. Although Tatum sees this as far off into the future, he could be wrong. According to a recent white paper by McKinsey and Company, we could be right on the verge.
The value question: Why exactly does cryptocurrency have value?
A big question for most crypto skeptics is, What value does crypto actually have? It’s not like gold that can be made into jewelry and worn. Furthermore, due to its lack of mass adoption, there are still only a handful of places on this Earth where you can use it in lieu of fiat currency. If cryptocurrencies are to go up in value, skeptics would say that it’s only speculation that leads to price increases and not underlying fundamentals.
The counterargument to this is that cryptocurrencies’ rarity and controlled supply make them similar to gold or even a baseball card. Gold can only be produced inside stars, and its presence is rare on Earth, thus giving it scarcity value. A baseball card can hold a ton of value (although illiquid), but you can’t use it to buy groceries at the store. Sometimes value can be gained, even if utilization is not.
The tailwinds behind crypto
What’s keeping crypto from dying? These are some of the forces pushing it forward.
Crypto is becoming more mainstream
Sure, in a period of decline, there might be fewer investors and traders active in the market. That does not mean that crypto is on the decline in terms of adoption. Institutions are adapting to this new crypto world and making it easier to utilize. Visa and Mastercard have both embraced crypto to some level, with new crypto-related services coming out and Mastercard having partnerships with major exchanges. JPMorgan and Goldman Sachs have their top analysts speculating on crypto. Mass adoption by financial institutions and companies means that there are more players in the market. This will both legitimize crypto and drive prices.
Crypto is evolving
Crypto is also evolving, and the rise of NFTs is just the start. The ETH blockchain, for example, has a computational ability embedded into it. This makes it easy to execute various applications and crypto features related to ETH blockchain, with ETH being one of them. Furthermore, there are updates that are given to the various blockchains that make it better.
Crypto is becoming more secure and less dodgy
FTX, Mt. Gox, and a whole slew of other companies have been subject to the theft of cryptocurrencies. The rise of offline crypto wallets that aren’t connected to the internet and extra encryption protocols can help reduce hacking.
The anonymity of crypto has now been disappearing, and there is less fear that it will be used to fuel terrorism or narcotics traffickers with total anonymity. For example, the FBI has developed tools along with other government organizations to track cryptocurrencies. No longer are popular cryptos like BTC totally anonymous.
Crypto and the 1990s Internet
So is crypto like the Internet of the 1990s? Crypto adoption is following a similar pattern to a lot of new technologies in the U.S., including the Internet. Should this continue, then crypto will indeed be adopted by the masses eventually. Remember, new technologies come out, reach a ceiling, and then with mass adoption, can skyrocket in usage.
Speaking of the 1990s internet, remember Netscape?
If we are going to compare crypto to the internet, it’s best to remember that when the internet came out, there were a bunch of companies that no longer exist today or do but are a shell of themselves. Here is a list of odes to the past:
So, this is the catch: the cryptos of today might not be the cryptos of tomorrow. The internet behemoths of today — Facebook, Google, Tencent — didn’t exist in the 1990s. Will Bitcoin, Ethereum, and Dogecoin be the MySpace, AltaVista, and Napster of cryptocurrencies, or will they survive? There might be a new cryptocurrency being developed now that will change the game like Bitcoin did.
If you’re thinking about investing in crypto, either with a startup or a more established digital currency, these brokerages that work with crypto investing can help.
So is crypto dead or just in hibernation?
The crypto market and crypto industry are based on technology that is completely new. Digital assets and the underlying blockchain technology are probably here to stay. However, it’s important to note that if you are looking into crypto investing, you need to think about whether your investment will still be valuable in the future. Other than blue-chip cryptos like ETH and BTC, which are volatile themselves, other altcoins could be extremely risky and could lose 100% of their value at some point.
There was a period of time in which stablecoins, a type of cryptocurrency that was pegged to fiat currency, were seen as a sure and stable bet. The crash of Terra and Luna in 2022, however, dispelled the myth that stablecoins were untouchable.
So, in short, crypto is probably not dead, but the future of crypto could be completely different than what it is today. New crypto firms, crypto companies, and crypto trading platforms will come and go. There could be a crypto boom and crypto crash every year in the immediate future. This is why educating yourself on the underlying technology behind the digital assets sold on a crypto exchange is paramount. Knowledge equals power and will help you decide whether or not to invest in crypto.
- Cryptocurrency faces challenges with government regulation, lack of mass adoption, and issues with encryption.
- Cryptocurrencies like Bitcoin are becoming more mainstream and are being embraced by larger companies like Visa and Goldman Sachs.
- The popularity of crypto has so far followed a similar trajectory to the internet in the 1990s. Once it reaches a certain level of popularity, adoption could skyrocket.
- Crypto is not dead, but the future of crypto could be completely different than what it is today, with new companies and platforms replacing the current ones.
View Article Sources
- What Is Quantum Computing? – McKinsey & Company
- Cryptocurrency Regulations Around The World – Comply Advantage
- How Much Does It Cost To Create an NFT? – SuperMoney
- Cryptocurrency Explained: A Comprehensive Guide to Understanding and Investing in Digital Assets – SuperMoney
- How Does Coinbase Make Money? – SuperMoney
- Visa Adopts Cryptocurrency, Begins Experimenting with Stablecoin Payments – SuperMoney
- Cold Wallets Explained: The Ultimate Protection for Your Cryptocurrency – SuperMoney
- Demystifying Initial Coin Offerings (ICO): Everything You Need to Know – SuperMoney
- What Is Slippage In Crypto? – SuperMoney